New Delhi, Nov. 10: India today took a stab at a comprehensive indirect tax reform by drawing up a draft goods and services tax (GST) code that sought to crumple a concertina of central and state taxes that had distorted retail prices for years.

The draft code has been formulated in the face of stiff opposition from BJP-ruled states such as Madhya Pradesh and Karnataka.

Others such as Punjab, Haryana and Tamil Nadu have been able to wrest significant concessions in order to protect their exchequers amid fears that the implementation of GST could crimp states’ revenues.

The GST has been a contentious subject. Today’s white paper gave some indication of this by refraining from spelling out the rates under the dual GST structure or setting a timetable for its implementation.

Earlier, the government had promised to introduce the GST by April 1 next year.

Union finance minister Pranab Mukherjee and Bengal finance minister Asim Dasgupta — the chief architect of the tax reform — will now hold discussions with traders and recalcitrant states to bring everyone on board.

The GST will mark the culmination of a tax reform process that began feebly 23 years ago when the Rajiv Gandhi government introduced a modified value added tax (Modvat) in 1986 and gathered steam after the BJP-led Vajpayee regime introduced Cenvat in 2002.

The new tax will have a two-tier structure: a central GST rate and a uniform state GST rate, which can together add up to 12.5 per cent for the broadest range of goods and services.

The GST will subsume central levies like excise duty, additional customs duties, surcharges and cesses. It will also envelop state taxes such as VAT, entertainment and luxury taxes, lottery and gambling taxes and state cesses.

However, it isn’t likely to end the irksome octroi duty that states slap on goods moving through its roads.

A second, concessional GST rate — which could vary between 4 and 6 per cent — will be levied on goods which are considered basic necessities such as foodgrains, matches, basic medicines etc.

Besides, a special low rate will be levied on trade in precious metals and financial services. Social goods and goods of local importance will be exempt from taxation.

Dasgupta said tobacco products would be the only item that would attract GST and a separate central tax as the government wanted to discourage their consumption. So, tobacco products such as cigarettes, beedis and chewing tobacco will be subject to excise duty over and above the normal GST.

However, there are battles ahead on the road to tax reform. States such as Punjab and Haryana have managed — at least for the moment — to forestall attempts to bring the mandi or purchase tax on foodgrain within the ambit of GST.

Madhya Pradesh and Chhattisgarh have imposed a similar purchase tax on minerals and do not want to scrap it. User states such as Bengal and Maharashtra are expected to push for the elimination of this levy.

The states have compromised by saying the tax can be axed if the Centre is ready to compensate states that give up this tax.

The draft code talks briefly about a compensation plan — possibly for five years — to make GST more acceptable to states that fear a loss of revenue.

Similarly, states such as Tamil Nadu and Karnataka which derive huge incomes from excise duties on alcoholic beverages do not want GST to subsume the state VAT and other levies on liquor and wine which are at a minimum of 20 per cent. This has stymied efforts by Dasgupta and others to bring all goods and services under the new tax regime.